Summary:
The sensitivity of corporate investment to the cost of capital is a micro-foundation prerequisite for the effectiveness of price-based monetary policy tools. Traditionally, it was thought that Chinese state-owned enterprises' investment displayed low capital cost sensitivity, as these firms' non-marketization functions and soft budget constraints blocked the interest rate transmission mechanism. In recent years, with quantitative monetary policy tools facing increasing limitations, the People's Bank of China has been actively trying to transform from a quantity-based to a price-based monetary policy framework. However, amid widespread corporate governance reform, interest rate marketization, and rapid financial innovation, the micro-foundation of China's monetary policy has undergone great changes. Therefore, it is necessary to estimate the capital cost sensitivity of corporate investment to test the transmission effectiveness of price-based monetary policy instruments. Based on the new classical investment model, this paper uses the generalized method of moments (GMM) dynamic panel method to estimate the capital cost sensitivity of Chinese listed companies' investment from 2004 to 2017, and it focuses on the impact of financial constraints on the capital cost sensitivity of corporate investment. The empirical results are as follows. First, the weighted capital cost sensitivity of firms' investment in China is significantly negative, and the long-term elasticity coefficients vary from-0.16 to-0.27, which shows that the transmission of price-based monetary policy tools is gradually getting better. Second, firms' investment is mainly sensitive to the cost of debt, while the coefficients of the cost of equity are insignificant and unstable. Third, contrary to the traditional view, the capital cost sensitivity of non-state-owned companies is significantly lower than that of state-owned ones, which can be explained by the stronger financial constraints faced by non-state-owned companies. This paper provides some supportive empirical evidence for the transformation of China's monetary policy framework. The evidence in this paper that runs contrary to the traditional view is consistent with other recent studies on Chinese companies' investment behavior. Deng and Zeng (2014) and Yu et al. (2014) find that investment efficiency in recent years is significantly lower for non-state-owned enterprises than for state-owned ones. As a result of financial institutions' lower risk appetite (caused by slowing economic conditions) and frequent monetary policy shocks, the gap in financial constraints between state-owned enterprises and non-state-owned ones has widened. As non-state-owned enterprises' credit resources were gradually squeezed out, serious financial constraints led to declining investment efficiency for these firms. The main contributions of this paper are as follows. First, two important factors affecting the capital cost sensitivity of corporate investment, namely the internal agency (business objectives and soft budget constraints) problem and financial constraints, are analyzed, and the special influence of financial constraints is emphasized. Second, this paper extends the research of Xu and Chen (2012), who use data from all above-scale industrial enterprises in China from 1999 to 2007, and it yields some results different from the literature. Third, this paper examines the impact of financial constraints on the capital cost sensitivity of corporate investment and finds that stronger financial constraints faced by non-state-owned listed companies explain their low capital cost sensitivity of investment. It is worth noting that the estimation result applies to public firms in China. For a large number of non-listed companies (especially small and medium-sized enterprises) with low information transparency and weak corporate governance, or various government financing platforms, more data and further work are needed to examine the capital cost sensitivity of their investment.
徐明东, 陈学彬. 中国上市企业投资的资本成本敏感性估计[J]. 金融研究, 2019, 470(8): 113-132.
XU Mingdong, CHEN Xuebin. Estimating the Sensitivity of Listed Firms' Investments to the Cost of Capital in China. Journal of Financial Research, 2019, 470(8): 113-132.
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